Fast, actionable advice from Founders, CEOs, and Investors

Justin Kan (Partner at Y Combinator) The Founder’s Guide To Selling Your CompanyThe Valley is replete with cautionary tales of startups that sold themselves in exchange for the stock of ultimately worthless acquirers. Don’t let yourself become another one.

Justin Kan (Partner at Y Combinator) The Founder’s Guide To Selling Your CompanyA potential acquirer’s first offer is rarely its best offer. Don’t be afraid to say “no” – the potential acquirer isn’t going anywhere. There are many negotiation strategies, but in order to extract the most value you need to (1) be willing to walk away and (2) initiate a competitive bidding process.

Justin Kan (Partner at Y Combinator) The Founder’s Guide To Selling Your CompanySometimes, a company you are doing a critical business development partnership with will insist on a “cool down period” in an agreement. This is a period of time during which you have to wait once you’ve received an acquisition offer before you can sign (for your partner to theoretically prepare a better counter offer). Cool down clauses can actually work in your favor as a way to acquire additional offers once you’ve received a first term sheet.

Justin Kan (Partner at Y Combinator) The Founder’s Guide To Selling Your CompanyYou can tell if an offer is bullshit because it will not be accompanied by an expiration date and/or a promise of a term sheet delivery within a very short period of time (24-48 hours). When a sufficiently high-up decision maker decides he/she wants to buy your startup, he/she will attempt to meet with you constantly and put time pressure on you, so as to prevent you from shopping the deal and getting a better offer.

Justin Kan (Partner at Y Combinator) The Founder’s Guide To Selling Your CompanyInvestment bankers are expensive (1 to 2% of the total deal value). However, the good ones can help you get a thorough understanding of the competitive landscape, who the individual decision makers are at every potential acquirer, and what buttons to push to maximize your deal value. Having a professional negotiator on your side is often extremely valuable, if you can get someone good.

Justin Kan (Partner at Y Combinator) The Founder’s Guide To Selling Your CompanyAs the startup, you have all the leverage before you sign a term sheet. Once you sign, you have almost no leverage at all. Feel free to push back on exploding offer deadlines and other pressure to sign immediately. After you sign, you can expect any points that weren’t previously negotiated will end up with language in favor of the acquirer.

Justin Kan (Partner at Y Combinator) The Founder’s Guide To Selling Your CompanyWhen negotiating a term sheet, push for a shortest possible closing period (target 30 days) to avoid getting deal fatigue and to put pressure on the acquirer (although, be aware that sometimes a regulatory issue will dictate the timing of the closing and that is outside of everyone’s control).

Mark Suster (Managing Partner at Upfront Ventures) When Should You Allow Exclusivity in Deals? | Bothsides of the TableTo craft exclusivity agreements, make them time bound, and name the competitor who you’re not allowed to sell to. If they won’t name the competitor, specify the industry or geographical region as narrowly as you can. In exchange for exclusivity, you want larger contracts, longer-term contracts, more commitments to success, and funding for accelerated development.

Heidi Roizen (Operations Partner at Draper Fisher Jurvetson (DFJ)) Operating Partner, DFJI learned that negotiation is “the process of finding the maximal intersection of mutual need. ” It sometimes takes extra work and lots of iterative communications to find out what the other person truly wants, but the process creates better, more sustainable deals.

Justin Kan (Partner at Y Combinator) The Founder’s Guide To Selling Your CompanyA potential acquirer’s first offer is rarely its best offer. Don’t be afraid to say “no” – the potential acquirer isn’t going anywhere. There are many negotiation strategies, but in order to extract the most value you need to (1) be willing to walk away and (2) initiate a competitive bidding process.

Justin Kan (Partner at Y Combinator) The Founder’s Guide To Selling Your CompanySometimes, a company you are doing a critical business development partnership with will insist on a “cool down period” in an agreement. This is a period of time during which you have to wait once you’ve received an acquisition offer before you can sign (for your partner to theoretically prepare a better counter offer). Cool down clauses can actually work in your favor as a way to acquire additional offers once you’ve received a first term sheet.

Justin Kan (Partner at Y Combinator) The Founder’s Guide To Selling Your CompanyYou can tell if an offer is bullshit because it will not be accompanied by an expiration date and/or a promise of a term sheet delivery within a very short period of time (24-48 hours). When a sufficiently high-up decision maker decides he/she wants to buy your startup, he/she will attempt to meet with you constantly and put time pressure on you, so as to prevent you from shopping the deal and getting a better offer.

Justin Kan (Partner at Y Combinator) The Founder’s Guide To Selling Your CompanyInvestment bankers are expensive (1 to 2% of the total deal value). However, the good ones can help you get a thorough understanding of the competitive landscape, who the individual decision makers are at every potential acquirer, and what buttons to push to maximize your deal value. Having a professional negotiator on your side is often extremely valuable, if you can get someone good.

Justin Kan (Partner at Y Combinator) The Founder’s Guide To Selling Your CompanyAs the startup, you have all the leverage before you sign a term sheet. Once you sign, you have almost no leverage at all. Feel free to push back on exploding offer deadlines and other pressure to sign immediately. After you sign, you can expect any points that weren’t previously negotiated will end up with language in favor of the acquirer.

Justin Kan (Partner at Y Combinator) The Founder’s Guide To Selling Your CompanyWhen negotiating a term sheet, push for a shortest possible closing period (target 30 days) to avoid getting deal fatigue and to put pressure on the acquirer (although, be aware that sometimes a regulatory issue will dictate the timing of the closing and that is outside of everyone’s control).

Justin Kan (Partner at Y Combinator) The Founder’s Guide To Selling Your CompanyThe Valley is replete with cautionary tales of startups that sold themselves in exchange for the stock of ultimately worthless acquirers. Don’t let yourself become another one.